Monday , January 25 2021

Sub-Saharan Africa offers mixed growth picture: QNB



DOHA: Sub-Saharan Africa activity has been strengthened and GDP growth of 3.1 percent is expected to 2018 from 2.7 percent in 2017, QNB noted in its weekly economic comment yesterday.

Given the large number of countries in the SSA, QNB said, it focused its analysis on economies that are either overpriced or underperforming the regional macroeconomic background.

The research paper elaborates on the two largest SSA economies, Nigeria and South Africa, which have seen sluggish growth despite commodity prices, and Ethiopia and Ghana, which QNB considers regional growth champions.

QNB analysts noted Nigeria and South Africa account for nearly 50 percent of the continent GDP. Both countries are resource intensive economies and have been struggling to deliver stronger growth since the commodity crisis by the end of 2014.

At that time, Nigeria's nominal net oil exports and South Africa's external revenues from platinum, iron ore and coal declined.

After the first production concentration of more than two decades in 2016 and a very slow 0.8 percent growth in 2017, Nigeria is set for an economic expansion of 1.9 percent in 2018. The main drivers for recovery have boosted oil prices, stabilized hydrocarbon output and the agricultural sector .

Higher oil prices have supported both surpluses in the current account and the reduction of the budget deficit. Together with bond issues and other inflows of portfolios, this has helped to curb external reserves and maintain new currency management.

Prospects are pointing to better performance in 2019, but growth is expected to remain subdued by 2.3 per cent. Risks are leaked to the disadvantage when oil prices are expected to slip and oil production disturbances pose a potential threat to the business.

Despite higher commodity prices and a new leadership that stimulates reform optimism and a more business friendly agenda, South Africa's expansion has weakened in 2018. GDP growth is expected to slow down to 0.8 percent this year from 1.3 percent in 2017.

The weakness is spearheaded by the agricultural, transport and retail sectors, and the recent quarterly contraction has even tipped the country to the first technical recession since the aftermath of the 2009 big financial crisis.

Moving deficits in structural deficits are South Africa vulnerable to foreign investors' feelings and have been affected by tightening global financial conditions and exchange rate turbulence in other emerging markets (EM). Large outflows from the portfolio have prevailed and the South African rand has fallen 16.7 percent against the USD so far this year.

The scenario is more positive for 2019. A recovery in the agricultural sector and looser fiscal policy should boost growth to 1.4 percent. However, the risks are leaked to the disadvantage, as commodity prices are particularly vulnerable to weakening global growth and normalization of monetary policy in key advanced economies can create further pressure in EM currencies, which forces the central bank to tighten monetary policy.

Ethiopia and Ghana are the most important economic outperformers on the continent. Ethiopia is often called "Africa China" and has consistently been one of the world's fastest growing economies since the beginning of the 21st century.

With deeply rooted political stability and a versatile and rich natural resource base, including crude oil and gold, Ghana has also provided long-term growth levels above the SSA average.

Ethiopia will present another year of strong growth, where activity is expected to increase by 7.5 percent in 2018. Foreign direct investment in infrastructure and manufacturing continues to lead to rapid industrial expansion.

Robust domestic business, stimulated by large infrastructure and investment costs, contributes to further internal and external imbalances. Export-oriented projects take longer to get started, while imports are increasing and budget balances are deteriorating.

Ethiopia's trade and current account deficit is being increased. But the government has managed to finance some of the deficits with foreign capital, especially FDI in connection with the new industrial parks and privatization programs.

Outlook for 2019 points to a very strong 8.5 percent real growth. With lower labor costs than most of its African comrades, Ethiopia is expected to continue attracting foreign investment in key labor-producing sectors such as textiles and footwear, which should support gradual development towards a more export-oriented economy.

The Ghana economy has recovered and growth is expected to decline in 2018 to 6.35 percent from a fast 8.4 percent in 2017. Major growth drivers include hydrocarbon production and support from higher commodity prices, especially crude oil and cocoa.

Tax financing increased, but the current account deficit decreased due to stronger external revenues. Growth is expected to accelerate to 7.6 percent in 2019. The risks are leaked to the disadvantage, as commodity prices should soften next year.

Despite the overall recovery in growth, a major common concern for most SSA countries is the increase in external debt debt, driven by investors' demand for higher returns and huge investment needs for infrastructure and social development. The US monetary policy tightening will increase SSA's border refinancing and rollover risks.

The portfolio inflow was strong during the first half of 2018 with record issuance of Eurobonds. This contributes to last year's government bond tree in Africa. In the medium and long term, SSA sovereigns would have to rely more on domestic and tax revenues to address sustainable economic development at risk-adjusted levels.

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